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The state is now demanding that it wants the company to return $2 million in grant money it awarded the company last year to bring fiber-based broadband to the South Side communities.

David Roeder, spokesman for the Illinois Department of Commerce and Economic Opportunity, which issued the grant, told the Chicago Sun-Times that Gigabit Squared "has lied repeatedly" about its mission and might have only paid $250,000 of the grant money it got for "legitimate purposes."

One of the cities that could have benefitted from the program was Chicago. In October 2012, the city won an Illinois Gigabit Communities Challenge award under which the state will invest $2 million to help support partner Gigabit Squared's Gigabit Neighborhood Gateway Program (GNGP).

Illinois Gov. Pat Quinn said that Gigabit Squared has not given the state information on how it has spent the grant money and that "we have no patience with this abuse of the public's trust."

It sent a letter to Gigabit Squared to see if it would like to conduct an informal hearing on the issue. Gigabit Squared has until April 10 to give the state an answer.

Gigabit Squared said in a statement that it has nothing to hide from the state.

"Gigabit Squared's new leadership team has a proactive, open, and honest dialogue with the State of Illinois to move towards a positive resolution of the project," the company said in a statement. "This has included access to the company, its records, leadership, and meeting every deadline provided as part of the State's normal review process."